Question

Which of the following is the best definition of Gross Domestic Product (GDP)? The market value of all final goods and services produced during a given year. The market value of all final goods and services sold during a given year. The cost of producing all final goods and services sold during a given year. The cost of producing all final goods and services produced during a given year.

Answer 1

Answer:

1. The market value of all final goods and services produced during a given year.
GDP is calculated as price * quantity (market value) of all goods and services it produces in its boundaries.
2. 10.66%
reason: when CPI increases, it means there is inflation. In this case, inflation = ((136 - 122.9)/ 122.9)*100 = 10.66%. So the employer should increase the salary by at least 10.66%.
3. Increases; larger

reason: when Sue gets a salary that is 1.5 times larger than the rate of inflation, she is ahead of the prevailing inflation rate. So, her real salary has increased and she can buy a larger quantity of goods and services.

4. Mary; Mary

reason: absolute advantage is when a person can produce more than another person in absolute numbers. Here, Mary can bake a maximum of 20 pies. While Paul can bake a maximum of 12 pies. So, Mary has an absolute advantage.
A person has comparative advantage if she can produce a good at a lower opportunity cost.

Mary's opportunity cost of producing one pie = 36/20 = 1.8

Paul's opportunity cost of producing one pie = 24/12 = 2

So, Mary has a comparative advantage in the production of pie.